Is probability-weighted forecasting in our future?

A discussion in the halls in Miami today centered around the increasing tendency of some appraisers to submit multiple projections of future incomes--perhaps low, medium, and high. There are some arguments for this practice; particularly in a market environment where volatility dominates.

But, there are several arguments against this practice. First, you've now added the extra work of producing three sets of cashflow forecasts. Second, you're forced to weight the likelihood of these outcomes as part of the "numerator" in your value calculation.

Perhaps the strongest argument against this practice is based in the theort of the value calculation model which puts a benefit stream over a risk factor in the form of cost of capital. Said one NACVA attendee: "I think it's wrong to weight different income stream options. That's the job of the risk factor which is designed to anticipate the likelihood of outcomes. It's the denominator that accounts for how reasonable the income stream estimate is, and appraisers only confuse things when they fool around with the numerator."